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Generational Outlook: The Federal Budget Now and in the Future. The Concord Coalition www.concordcoalition.org. 2010-2011. Policy Making Process. 1. Agenda Setting President Clinton and Obama – Health Care; Bush – Tax cuts Congress 1994 Republicans “ Contract with America ” - PowerPoint PPT PresentationTRANSCRIPT
The Concord Coalition www.concordcoalition.org
Generational Outlook: The Federal Budget Now and in the Future
2010-2011
POLICY MAKING PROCESS 1. Agenda Setting
President Clinton and Obama – Health Care; Bush – Tax cuts
Congress 1994 Republicans “Contract with America” 2006 Democrats “100 hour agenda”
Courts Abortion; Desegregation of Schools; Judicial Activism
Media Watergate
Special Interests Americans with Disabilities Act
Veteran groups United Cerebral Palsy
Citizens http://www.nytimes.com/2010/04/13/us/13tank.html
2. Policy Formation
President Hilary Clinton: Health Care G.W. Bush: Iraq War, Tax Cuts
Congress 2010 Health Care Bill
Bureaucracy Medicare and Medicaid
3. Implementation
Use of the Bureaucracy
Rules and Regulations
Mandates
Grants
Discretionary Authority
NEWSBOUND – BUDGET BREAKDOWN
http://www.youtube.com/watch?v=fWu8o-ZzUNs
TYPES OF SPENDING
Mandatory Spending:
Spending Required due to previously passed legislation Medicare, Medicaid, Social Security
Discretionary Spending:
Optimal Spending set by annual Appropriations Foreign Aid, Education, Defense, Transportation
OMB/OBAMA PROPOSED BUDGET FY2011
Source: http://www.whitehouse.gov/omb/budget/Overview/
http://www.youtube.com/watch?v=DH9U42vptzw
Budget Request 2011
TAKEN FROM: HTTP://WWW.NYTIMES.COM/INTERACTIVE/2011/07/28/US/CHARTING-THE-AMERICAN-DEBT-CRISIS.HTML?HP#PANEL/HOW-THE-DEBT-ACCUMULATED
The U.S. debt is divided into two categories:
Intragovernmental Holdings - Just under one-third of the Federal debt is owed to about 230 other Federal agencies. How does this happen? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need right now. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasuries with it.
Social Security - $2.72 trillion Office of Personnel Management (Federal Employees Retirement, Life Insurance, Hospital
Insurance Trust Funds, including Postal Service Fund) - $1.12 trillion Dept. of Health and Human Services - $69 billion Federal Deposit Insurance Corporation - $35 billion Department of Transportation (Airport and Highway Trust Fund) - $20 billion Department of the Treasury (Exchange Stabilization Fund) - $23 billion Department of Labor (Unemployment Trust Fund) - $21 billion
Debt Held by the Public - Foreign governments and investors hold 48% of the nation's public debt. The next largest part (21%) is held by other governmental entities, like the Federal Reserve and state and local governments.
Foreign - $5.311 trillion Federal Reserve - $1.66 trillion State and Local Government, including their pension funds - $709.1 billion Mutual Funds - $864.9 billion Private Pension Funds - $605.2 billion Banks - $305.2 billion Insurance Companies - $259.1 billion U.S. Savings Bonds - $184.7 billion
OUTLAYS OF SELECT MANDATORY SPENDING PROGRAMS
(FY 2007 PROJECTED)
$0
$100
$200
$300
$400
$500
$600
$ B
illio
ns
SocialSecurity
Medicare Medicaid FederalRetirement& Disability
Unemploy-ment
Comp.
EarnedIncome &Child TaxCredits
FoodStamps
FamilySupport
ChildNutrition
Source: Congressional Budget Office, January 2007
DEFENSE DISCRETIONARY SPENDING AS A PERCENTAGE OF GDP
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Source: Congressional Budget Office, August 2007
As
a P
erc
en
tag
e o
f G
DP
MONETARY POLICY
FEDERAL RESERVE SYSTEM
Run by board of governors – serve 14 year terms
Chair – serves a 4 year term 12 Federal Reserve districts
Can set reserve requirements and give discount rates
Can control the money supply to counteract inflation or a recession. How?
TAXING AND SPENDING Fiscal Policy is the use of national govt.’s taxing
and spending to influence the operation of the economy and maintain economic stability
Discretionary fiscal policy – deliberate decisions by the President or Congress to run budget surpluses or deficits
How can the Pres. and Congress influence the economy?
Revenue Act of 1964 – Kennedy reduced taxes to help stimulate the economy Bush and Reagan attempted to repeat this success
BUDGET DEFICIT AND THE DEBT What has led to our debt?
Tax cuts Defense spending Gross expansion of Social Security, Medicaid and Medicare
View the deficit as a percentage of the Gross Domestic Product GDP – total market value of all goods and services produced in
a country during the year 1980s – 3-5% 2006 – 3.2%
Over the years, deficit reduction legislation has been proposed and passed but not on consistent basis
Keynesian economics justifies more spending in times of economic recession
1980S - REAGAN
Tax and budget cuts led to huge deficit
Gramm-Rudman – had to agree to declining deficit number, if not – cuts “across the board” in discretionary spending
Why did some members of Congress not like this?
1986 – Tax Reform Act of 1986 Dropped number of tax brackets from 15-3
By 1988, $1 trillion had tripled to $3 trillion
BUSH SR.
“Read my lips, no new taxes”
Recession in early 1990, had to tax
To avoid the across the board cuts, Bush: Created new top 31% tax bracket for upper class Increased the federal tax on gasoline Cut defense spending
Budget Enforcement Act – created the “pay as you go” system. What is this?
CLINTON
New 39% tax bracket Increase in federal gasoline tax Cutback in Medicare spending
Balanced Budget Act Limited govt. spending “Phantom surplus”
BUSH
$1.35 trillion in cuts over 10 years Top tax bracket from 39%-35%
Gradual elimination of “death tax” Attempted to fix the marriage penalty
SOCIAL SECURITY Origins:
New Deal Contributors
Employee: 6.2% Employer: 6.2%
Taxable Maximum: $90,000
Contribute for 10 years to receive benefits
HOW DOES IT WORK? “Pay as you go” system
WHO GETS IT?
Recipients: 62.8% Retired 18.4% Survivor
Benefits 13% Disabled 5.8% Non working
spouses
SOCIAL SECURITY TRUST FUND
Surplus goes into the trust fund
2005: 1.7 trillion in trust fund 155 billion added in 2005
Government borrows 150 billion a year (IOUs in fund)
PROBLEMS
Baby Boomers
Living longer
Fewer childbirths
1945 42 workers/1 retiree
2010 3 workers/1 retiree
AMERICA’S POPULATION IS AGINGPOPULATION AGE 65 AND OVER
Source: Social Security and Medicare Trustees’ Report, April 2007
0%
5%
10%
15%
20%
25%
2007 2012 2017 2022 2027 2032 2037 2042 2047
Year
Per
cen
tage
of
Pop
ula
tion
Age
d 6
5 an
d O
ver
AMERICANS ARE LIVING LONGER AND HAVING FEWER CHILDREN
Consequently, fewer workers are available to support each Social Security recipient
1960: 5.1 to 1 Today: 3.3 to 1 2040: 2.1 to 1
Source: Social Security Administration, April 2007
PROBLEM
2015 Payouts exceed income Need to tap into the trust fund Govt. borrows $150 billion a year
2037/2052: Trust Fund depleted
Annual collections only pay for 74% of benefits
SOCIAL SECURITY AND MEDICARE PART A CUMULATIVE CASH SURPLUSES AND DEFICITS
IN CONSTANT 2007 DOLLARS—2007 THROUGH 2080
-$3,000
-$2,500
-$2,000
-$1,500
-$1,000
-$500
$0
$500
In B
illion
s o
f C
on
sta
nt
20
07
D
ollars
2007 2010 2020 2030 2040 2050 2060 2070 2080
Calendar Year
Source: Social Security Trustees’ Report—April 2007 (Intermediate Projections)
$708 Billion: Cumulative Social Security Cash Surplus
-$26 Trillion: Cumulative Social Security Cash Deficits
-$46 Trillion: Cumulative Medicare Part A Cash Deficits
-72.3 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits
MEDICARE COSTS SOAR IN THE COMING DECADES
0
5
10
15
2006 2010 2020 2030 2040 2050 2060 2070 2080
Calendar Year
As a
Perc
en
tag
e o
f G
DP
General Revenues required to fund the program
Income from dedicated taxes, premiums, and state transfers
Source: Medicare Trustees’ Report, 2007
HEALTH CARE COSTS ARE RISING FASTER
THAN THE ECONOMY
Source: Congressional Budget Office, December 2005.
0
5
10
15
20
25
2007 2012 2017 2022 2027 2032 2037 2042 2047
Year
Per
cen
tage
of
GD
P
Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.)
Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth—consistent with the assumption used by the Medicare Trustees.
All Federal RevenuesIn Fiscal Year 2006
All Federal SpendingIn Fiscal Year 2006
PROPOSED SOLUTIONS Raise Max level from $90,000 to $140,000
Lower shortfall by 43%
Raise tax by ½% Lower shortfall by 24%
Raise age 67-70 Lower shortfall by 38%
Reduce benefits by 5% Lowers shortfall by 26%
Lower benefits for high wage workers Lowers shortfall by 14%
Put estate tax into Social Security Fund Lowers shortfall by 75%
TOPICS TO STUDY Policy Making Process
Budget Policy
Tax Policy
Monetary Policy
Social Security Policy